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By Paul Sullivan
Right now Qatar is rich and outwardly aggressive in many ways. The country’s future economy and national security, however, could be challenged if Qatar does not begin to tread softly in its foreign affairs and more fully diversify its economy.
Qatar has been deeply involved in the support of the Morsi and Muslim Brotherhood regime of Egypt. They sent billions of dollars in aid and support to Egypt during the Morsi presidency. On June 3, however, it all went tumbling down as millions of Egyptians hit the streets in protest. The majority of Egyptians seem to have a deep antipathy to the Muslim Brotherhood. As a result, a significant part of Egyptian society harbors deep resentments against the Qataris for their support of the previous regime. Although the Qataris helped Egypt bring some semblance of partial balance to its government budget, they also, were seen as supporters of a regime that was getting closer and closer to Hamas, the Gamaat Islamiyya, and other extremist groups. At one point, Morsi gave a talk essentially calling young Egyptians to join a “jihad” in Syria. There are arrest warrants out for many of the Muslim Brotherhood leaders for inciting violence, spying, and damaging the economy. Qatar clearly erred in backing the Morsi Regime.
This was not Qatar’s only case of questionable financial support. The country is also sending a substantial amount of money and material to the rebels, many of which are extremists located in Syria. Many people have died at the hands of these rebels. I would not be surprised if Qatar’s support of the rebel forces seriously comprises the security of their activities in Syria sometime in the future. After all, many in Syria see them as supporters of their enemies in a war that has killed over 100,000.
Qatar was also deeply involved with the Libyan revolution and has had its hands and checkbook involved in other destabilizing activities in the region.
Qatar is a small country. It is slightly smaller than Connecticut. It has a population of about 1.9 million of which about 90 percent are not native Qataris. It is one of the richest countries in the world in terms of income per capita—right up there with Luxembourg. In the northeast, the country shares the largest natural gas field in the world with Iran. Yes, Iran. Qatar’s military is tiny. Its major source of military protection is the massive joint U.S.-Qatar Airbase at Al Udeid. This base can feasibly protect against conventional threats.
However, the greatest potential threats against Qatar are not conventional but are from unconventional revenge attacks that are responding to their aggressive foreign policies. One of the most likely targets is the Ras Laffan LNG (liquefied natural gas facility) that helps extract process and export in huge LNG tankers to the world at the moment.
Other threats looming for Qatar are the huge changes likely to come to natural gas markets—its major source of income. Qatar gets very good prices for its natural gas from Asia, about $15-18 per million British Thermal units (MMBTU), and the European Union ($11-15 per MMBTU). It sells its LNG to the United States at $3 per MMBTU because of the competition from the United States’ giant shale gas reserves and production. Over time the Asian and EU prices of LNG will likely drop as they are delinked from oil price movements and as more LNG facilities and natural gas pipelines are built in Russia, Australia, the U.S., Canada, Central Asia, and many other places. The prices and demand for its gas to Asia could also drop due to the development of China’s massive shale gas reserves and Japan’s efforts to develop its massive methane hydrates (frozen natural gas in deep water) offshore reserves. Japan is the world’s largest importer of LNG. If it develops its own natural gas reserves in the form of methane hydrates and other big consumers, like South Korea and Taiwan, do the same then Qatar has an even bigger problem.
Qatar exports about 1.4 million barrels of oil a day. So far, it only uses a small portion of its oil domestically. However, its internal demand for oil is increasing rapidly. Oil is a much less important source for economic growth for Qatar than it used to be. The most important driver for its growth in recent years has been the near quadrupling of its natural gas exports since 2007. Since 2001,natural gas exports have increased nine-fold. The country’s gas revenues far exceed its oil revenues.
Qatar’s oil and gas revenues combined are about 70 to 80 percent of government revenue and close to 60 percent of GDP. The real downside to the energy revenue picture for Qatar will happen when the LNG markets is more fully integrated and the LNG prices are delinked from oil. When real spot markets develop then Qatar could be in for a very rough ride. The further development of shale gas throughout the world will also drive down the price of LNG. This would not necessarily be a problem if Qatar had better control over its purse strings. When this does happen Qatar will likely have a very difficult time reigning in its expenditures. Being wealthy today does not guarantee wealth tomorrow.
Qatar needs to be far more careful in the near term and must put great efforts toward mending fences and change its aggressive ways in the medium- to long-term. The country should also put far more effective efforts into diversifying its economy. Real trouble could be on the way.
Paul Sullivan is a professor of economics at the National Defense University, an adjunct professor of security studies at Georgetown University, an adjunct senior fellow at the Federation of American Scientists, and a columnist for UB Post in Mongolia and Turkiye Gazetesi in Turkey.
*All opinions expressed are those of Paul Sullivan alone.
[Photo courtesy of Sam Agnew]